Templeton’s Bigger Than One Bond Fund, Even a Giant One

By Brendan Conway

A $70 billion bond fund is nothing to sneeze at. But in the case of Franklin Resources (BEN), investors clearly pay too close attention to the fortunes of a single fund.

That’s the argument at UBS AG (UBS) today, where analysts Brennan Hawken and David Eads unpack some interesting numbers about Templeton Global Bond Fund (TPINX). The fund, Franklin’s largest, is also one of the biggest anywhere: It ranks in the top 25 mutual funds in the entire market by size, according to Morningstar data.

Templeton Global Bond’s assets and Franklin’s stock are 85% correlated, according to the firm, showing that investors are linking BEN’s prospects to a surprising degree to this fund’s asset-gathering prowess. But here’s the clearest sign that what’s good for Global Bond is not the only thing that’s good for Franklin: the fund represents only about 15% of the firm’s AUM.

The organic growth at BEN has largely gone unnoticed, likely because of a perception that growth was driven by a single product. However, while Global Bond was a large part of flows in fiscal 2010 and 2011, BEN’s organic growth track record has been stronger than peers in seven of the past eight years.

What happens to Global Bond, and by inference Templeton’s stock, once the Federal Reserve takes away the punchbowl? Not to worry, the UBS duo writes:

Notably, with no exposure to US Treasuries and a duration of about 1.5 years, the Global Bond strategy’s exposure to interest rates, particularly in the US, is more limited than most broad indexes.